January 6, 2006
INDUSTRY ADVISORY LETTER REGARDING THE APPLICABILITY OF CERTAIN PROVISIONS CONTAINED IN CHAPTER 268 OF THE ACTS OF 2004, ENTITLED "AN ACT PROHIBITING CERTAIN PRACTICES IN HOME MORTGAGE LENDING," TO ENTITIES ENGAGED IN MORTGAGE LOAN SERVICING IN THE COMMONWEALTH
To the Chief Executive of the Institution Addressed:
In response to the enactment of Chapter 268 of the Acts of 2004 on August 9, 2004, entitled "An Act Prohibiting Certain Practices in Home Mortgage Lending" (the "Act"), the Division of Banks ("Division") has received a significant number of inquiries regarding the applicability of the provisions contained therein to entities engaged in the business of mortgage loan servicing in the Commonwealth. Several of the inquiries have sought to determine whether a distinction regarding the applicability of the Act is to be made based upon the banking charter maintained, license held, or the licensing exemption claimed by the entity.
The purpose of this letter is to clarify the Division's position regarding the applicability of the Act as well as to remind all industry participants of the Division's expectations regarding certain existing statutory provisions which were amended under the Act. As set forth in the Act, Massachusetts General Laws chapter 183C, section 2 defines a 'Lender' as:
[A]n entity that originated 5 or more home mortgage loans within the past 12 month period or acted as an intermediary between originators and borrowers on 5 or more home mortgage loans within the past 12 month period, provided that lender shall not include a person who is an attorney providing legal services in association with the closing of a home loan who is not also funding the home loan and is not an affiliate of the lender. For the purposes of this chapter, lender shall also mean a broker.
The Division notes that the statute references the volume of mortgage loan transactions conducted within a 12-month period without specifying the type of lender originating the mortgage loan. The Division's position remains that the provisions of Massachusetts General Laws chapter 183C apply equally to all banks, credit unions, licensed entities, and any other mortgagee meeting the stated loan volume threshold.
Through separate provisions, the Act also amended Massachusetts General Laws chapter 183, sections 56 and 59 which, respectively, address prepayment penalties and late fees charged in a mortgage loan transaction in Massachusetts. The limitations contained in chapter 183, section 56 apply to, "any mortgage note secured by a first lien or second or subsequent lien" on an owner-occupied dwelling house of 4 or less separate households or a residential condominium unit. Similarly, chapter 183, section 59 sets forth limitations, applicable to any mortgagee, assignee, or holder of a mortgage note relative to the permissible late fees to be charged under a mortgage note, "secured by a first or subordinate lien" on an owner-occupied dwelling house of 4 or less separate households or a residential condominium unit. Neither statute contains an exemption from the limitations set forth therein based upon the status of the mortgagee or the holder of the note.
By prior published opinions, the Division has consistently stated that the limitations contained in section 56 and section 59 apply to all lenders which originate mortgage loans in Massachusetts, which would include all licensed mortgage lenders and mortgage brokers, credit unions, and banks, including federally chartered banks, out-of-state banks, or other mortgagees. By extension, if held or serviced by a party other than that which originated the note, the same limitations would apply. Accordingly, the party holding or servicing the note would be limited to enforcing the terms of the note to the extent such terms were consistent with the limitations set forth by the applicable Massachusetts statute at the time the note was originated.
If you have any questions regarding this letter, please feel free to contact Deputy Commissioner, Gregory Short at (617) 956-1500, extension 547.
Very truly yours,
Steven L. Antonakes
Commissioner of Banks